The International Energy Agency is expecting global demand for natural gas to rise over the next couple decades, and even beyond that. Natural gas is a cleaner fuel than coal or petroleum. It can be easily stored and transported for use, and it is a comparatively cheap source of energy.
No surprise, then, that natural gas is so popular. And its expected growth bodes well for Kinder Morgan (KMI 2.53%).
The largest gas transmission network
With roughly 71,000 miles of natural gas pipelines, Kinder Morgan owns the largest natural gas transmission network in the U.S. And some of the key areas where it operates are primed for meaningful growth. Natural gas production in the Northeast basin, the Permian basin, and the Haynesville shale is expected to see robust growth through 2030. Kinder Morgan has takeaway capacity in all these regions, which means it stands to benefit from this growth. Kinder Morgan also expects Texas and Louisiana to account for more than 95% of the growth in demand for natural gas through 2030. Again, the company has a strong footprint in these regions.
In terms of demand sources, liquefied natural gas (LNG) exports and the industrial sector are expected to drive the natural gas demand growth in the U.S.:
Image source: Kinder Morgan.
As the chart shows, U.S. LNG exports are expected to rise from 9 billion cubic feet per day (bcfd) in 2021 to 22 bcfd by 2030. Kinder Morgan delivered roughly 6.2 bcfd in the first quarter this year. It expects that this volume could rise to 8 to 12 bcfd by 2030. So, the company stands to benefit from the growth in LNG exports.
Overall, Kinder Morgan's large and strategically located assets should help it capture significant benefits from the expected natural gas growth.
Improved balance sheet
Despite the positive outlook for natural gas, investors might be wondering if Kinder Morgan can support its dividend, which yields 5.5% at recent prices. The company had to cut its dividend in 2015 between a steep drop in energy commodity prices and an overstretched balance sheet. But Kinder Morgan is in much better shape today.
Kinder Morgan's annual cash flow from operations was more than double the dividends it paid in the past six years. Further, the company has reduced its debt by over $11 billion since 2015. Its debt-to-EBITDA ratio has improved significantly during this timeframe.
KMI Net Total Long Term Debt (Annual) data by YCharts
So, the company's balance sheet is much stronger, and its dividend payments are well covered by cash flow from operations. Overall, the company's dividend payments look safe for the coming several years.
All the above factors make Kinder Morgan stock appealing for long-term dividend investors.
